* Latest in series of economic reforms from new PM
* Political response will key
(Adds analyst, quotes, detail)
By Royce Cheah
KUALA LUMPUR, Nov 26 (Reuters) - Malaysia plans to impose a
goods and services tax, likely from 2012, in a bold but
potentially unpopular move to boost revenues as it faces its
largest budget deficit in more than 20 years.
A top Malaysian finance official said on Thursday that the
long planned goods and services tax would be set at 4 percent.
The required legislation would be passed by March 2010 and the
tax would be implemented 18 months after that.
Malaysia currently depends on state oil giant Petronas for
more than 40 percent of its revenues and faces a budget gap of
7.4 percent of gross domestic product (GDP) this year.
It currently has just 2.3 million paying income tax,
including companies, out of a population of 28 million.
"I'm not sure that when the crunch comes, whether the
political will would be there. This is not the first time they
have wanted to propose a goods and services tax," said Citibank
economist Kit Wei Zheng.
The new tax, which Second Finance Minister Husni Ahmad
Hanadzlah said would replace an existing sales tax and raise an
additional one billion ringgit, has been under consideration
for many years but has been repeatedly shelved for political
reasons.
The government that has ruled this Southeast Asian country
for 52 years stumbled to its worst ever defeat in national and
state elections last year and backed off economic reforms.
"If it really goes through, then yes it is a good signal of
the committment to tackle fiscal problems," Kit said.
The government would exempt food staples such as rice and
cooking oil from the new tax, Husni was quoted as saying by
Malaysian state news agency Bernama.
The current sales tax is projected to raise 7.8 billion
ringgit ($2.31 billion) in 2010 out of a total 148 billion
ringgit in revenues, according to government data.
[ID:nKLR305036]
INFLATIONARY PRESSURES?
Husni said he did not expect the new tax to add to
inflation, although economists said that there would be an
impact on prices, even though the exemptions for basic
foodstuffs would result in about 20 percent of the consumer
price index not being covered by the new tax.
With government support still rocky more than a year after
the 2008 elections and other potentially unpopular measures
such as reducing fuel and food subsidies due to come in next
year, economists said there was a potential for a backlash.
"We should do it gradually. You should take baby steps. You
shouldn't do it with a high rate as that could spook some
people," said Bank Islam chief economist, Azrul Azwar Ahmad
Tajudin.
Since taking office in April this year, Prime Minister
Najib Razak has unveiled a series of economic reforms aimed at
boosting Malaysia's competitiveness and recently announced
plans to cut the budget deficit to 5.6 percent of GDP in 2010.
[ID:nSP189242]
(Additional reporting by Denny Thomas; Editing by David Chance
and Kim Coghill)
((royce.cheah@thomsonreuters.com; +603 2333 8040; Reuters
Messaging; royce.cheah.reuters.com@reuters.net; bureau email:
areuters@gmail.com))
($1=3.375 Malaysian Ringgit)
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